Four Pillars of a Successful Rewards Program for Banks and Credit UnionsPublished-Jun 2, 2016

According to the Colloquy Customer Loyalty Census, the average American household maintains memberships in 29 loyalty programs. However, they are only active in 12 of those 29 programs. Businesses managing those 17 inactive programs are losing time and money to keep them running? Every rewards program should be increasing customer loyalty and generating revenue, otherwise why bother?

Banking rewards are no different. Nearly four out of five consumers say that a rewards program is a top priority when choosing a financial institution, and roughly two thirds of customers are willing to increase the number of products they hold with their banking provider in order to qualify (or earn more benefits). At the same time, less than one in five customers report receiving rewards for their debit transactions. Fewer than half of all financial institutions currently offer debit rewards programs. As major financial institutions have curtailed their debit rewards offerings in recent years, the time is ripe for community banks and credit unions to seize the opportunity by building a loyalty program that really works.

1. Simplify and Maximize the Customer Experience

Before implementing any rewards program, your financial institution should carefully evaluate and identify solutions that put the customer first. This is particularly important for local banks and credit unions who enjoy a reputation for having greater intimacy with the communities they serve, so their loyalty programs should match the level of personalized service they offer.

Additionally, an effective loyalty program doesn’t just encourage increased utilization of products; it can drive sales of additional products and services. The modern consumer can be pretty savvy, so they may consult a myriad of sources before making purchasing decisions. But they’d prefer their information and options to be consolidated whenever possible — particularly if they are engaged in a rewards program.

Today, more than half of all consumers want their financial institutions to identify discounts for them — ways they can save with their banking provider and with their favorite merchants/retailers. To provide value beyond the typical points-for-loyalty scheme, rewards programs can proactively share information with users about additional ways to save. As rewards platforms track and analyze people’s purchases and behaviors, the platform should leverage that data to extend discounts and special offers from relevant local merchants.

Gamification can further enhance the customer experience. These consumer-centric game concepts can increase program adoption. To generate valuable and enjoyable experiences, your institution shouldn’t rig the system; game odds should be in users’ favor, and success must actually be attainable.

2. Provide Rewards Consumers Crave

Discounts to big-box, chain retailers are commonplace. Megabanks like BofA already offer boilerplate, cookie-cutter discounts from national chains, and have been doing so for some time. But rewards that aren’t tailored by location, behavior or preference frequently fail to foster loyalty because they don’t offer unique or meaningful value to customers.

In addition to tracking purchasing behavior, a rewards platform can help community banks and credit unions use their data to identify their most profitable customers and, in turn, suggest customized product- or service rewards aligned with their interests.

Offering these custom, local rewards at local businesses makes it easy for consumers to support their community. Community-based institutions in particular are primed to capitalize on the “bank local/buy local” movement. When 78% of consumers believe it’s important to bank locally, then a rewards program that provides extra rewards for shopping locally would be a natural fit. And there’s a big bonus: community banks and credit unions can use their rewards program to open up dialogue with local merchants who could become business banking customers.

Cash, prizes and discounts aren’t the only ways to encourage loyalty. Non-monetary rewards can also be effective. For instance, a community-based institution can draw on its unique understanding of the area and the values of the people it serves, allowing customers to convert rewards into charitable donations or other philanthropic endeavors that are distinctly local.

3. Make Your Rewards Accessible

The most successful rewards programs actively encourage more redemption. A nefarious program manager assumes the goal is to minimize redemptions, so they erect all kinds of hurdles and roadblocks. But you should make it easy to redeem rewards on your platform — instantly. Consumers in all sectors are gravitating toward those brands that satisfy their needs as quickly as possible. Brands that provide digital notifications about redeemable rewards as soon as customers enter their locations will see greater success and engagement than those who offer customers delayed rewards redemption.

As a corollary, you should avoid customer disqualifications, non-redemption and expiration dates that tend to creep up in the fine print and frustrate customers down the line. Airlines and travel organizations are some of the worst offenders, implementing blackout dates and requiring tens of thousands of points to purchase itineraries: “Sure, you can book a trip to Maui with your points… one million of them… in July.”

The value of the rewards available should align with the level of engagement and investment required to acquire them. You can encourage redemption and reap rewards program benefits by selecting options that don’t rely on “breakage” to be profitable. Unfortunately, some programs bank on this breakage — where consumers accumulate but do not redeem rewards — to keep it profitable. Such behavior cheats customers. It risks tarnishing the brand by lowering customer service standards and creating a disappointing experience. Instead you should consider a rewards program that will take on the program’s point liability. Many third-party rewards providers are willing to keep point liabilities on their on their books.

4. Marketing Your Advantages

Consumers want- and expect to be contacted by their loyalty programs with relevant value-adds. The most successful rewards programs involve real-time, customized Omni channel marketing techniques to increase engagement and customer activity. For instance, reward notifications activated by geographic- or time-sensitive cues can remind and present customers with offers that they desire at the point of need, differentiating them from other traditional programs.

Community institutions often face difficulties allocating the resources necessary to support a dedicated marketing or customer engagement team capable of executing effective strategies for their rewards program. Whether they rely on an internal team or third-party provider, community institutions implementing a rewards program need to fully support it with integrated marketing and customer engagement strategies. In a study of rewards solutions, 80% of the most effective loyalty programs maintain dedicated marketing teams, so community banks and credit unions can’t afford to cut corners or limit internal support for their program. Without sustained marketing support, the rewards program isn’t worth the investment.